Measuring Unemployment (Cambridge (CIE) IGCSE Economics): Revision Note

Unemployment definitions

• Key terms to understand are:

• Employment

  • Refers to the economic use of labour as a factor of production

• Unemployment

  • Someone is considered to be unemployed if they are not working, but actively seeking work 

• Labour force

  • A country's population is divided into the labour force and non-labour force

    • The labour force consists of all workers actively working PLUS the unemployed (who are seeking work)

    • The non-labour force includes all those not seeking work, e.g. stay-at-home parents, pensioners, and schoolchildren (these people are economically inactive)

• Full employment

  • Describes the ideal situation when everyone in the economy who is willing and able to work has a job

Calculating the unemployment rate

• Three metrics are commonly used when analysing the labour market in an economy

1. The unemployment rate

$\mathrm{Unemployment}\mathrm{rate}=\frac{\mathrm{Number}\mathrm{actively}\mathrm{seeking}\mathrm{work}}{\mathrm{Total}\mathrm{labour}\mathrm{force}}\mathrm{x}100$

• Unemployment rates do not capture the hidden unemployment that occurs in the long term

  • Workers look for a job but may eventually give up and become economically inactive

  • This actually improves the unemployment rate, as fewer people are actively seeking work

2. The employment rate

$\mathrm{Employment}\mathrm{rate}=\frac{\mathrm{Number}\mathrm{in}\mathrm{employment}}{\mathrm{Population}\mathrm{of}\mathrm{working}\mathrm{age}}\mathrm{x}100$

• The employment rate could be increasing even as the unemployment rate is increasing:

  • This may be caused by increased immigration, which causes the working-age population to increase

  • This may be caused as people move from being economically inactive to employed

3. The labor force participation rate

$\mathrm{Labour}\mathrm{force}\mathrm{participation}\mathrm{rate}=\frac{\mathrm{Labour}\mathrm{force}}{\mathrm{Total}\mathrm{population}}\mathrm{x}100$

• Countries that have a more conservative view on the role of women, tend to have a lower labour force participation rate, as there are fewer women in the workforce

Using the Labour Force Survey (LFS) to measure unemployment

• The Labour Force Survey is a regular survey of households, carried out to measure the number of unemployed people in a country

  • The survey was created by the International Labour Organisation (ILO)

How it works

• A sample of households is chosen to represent the whole population

• People aged 15–64 (or the official working-age range for that country) are asked questions about their work status

• A person is counted as unemployed if they:

  • Have not worked during the survey period

  • Are available to start work within the next two weeks

  • Have actively looked for work in the last four weeks